When buying a new vehicle, most buyers will be looking to trade-in their current vehicle. But is this the only or the best option? What should buyers taking on finance consider? The experts at Jade Car Loans explain the options, alternatives and possible outcomes when deciding to trade-in a car when buying a new vehicle with finance.
Buyers have a number of ways of disposing of their current vehicle when purchasing a new one. Different options which can present both positives and negatives for the new car financing. Understanding the process, and knowing what options are available to you, may contribute to the best outcome on the new finance arrangement.
Overview: Trade-in a Car
When buying a new vehicle, owners can either sell their currently vehicle privately or trade it in on the new vehicle. The process of trading-in involves the dealer assessing what they are prepared to pay for the vehicle. Buyers may be offered the choice of deducting that value from the price of the new vehicle or taking the cash payment. This may be up to the dealer.
The amount a dealer is willing to offer on a trade will depend on their profit margin on the new vehicle. The price offered will reflect the wholesale value. Where a dealer has their own second-hand lot, they often choose to sell the vehicle themselves. Alternatively, they will be looking to on-sell it to another second-hand motor vehicle dealer, usually in the wholesale market.
Buyers can consider whether they may get a better price on the current vehicle by selling it themselves. Dealers will offer a wholesale value while a private buyer may be prepared to pay more – a retail price. But the process of selling a vehicle privately is not for everyone. It can be challenging, time-consuming, and sellers must be alert to online scams when selling on the popular online platforms.
Whichever way you dispose of a current vehicle, you must sign the transfer of registration on the registration papers. Take a picture of the papers as your record of this.
If finance is still owed on the vehicle, this must be finalised. If trading the vehicle, the dealer finalises the amount with the lender on settlement of the new vehicle. When a vehicle under finance is being traded in, dealers take that amount into consideration when making offers. The seller will be required to pay break fees for finalising the loan prior to the end of the fixed term. Lenders will have registered their interest in the vehicle with the PPSR and this will be released when the loan is finalised.
Prior to visiting a dealership, consider contacting the lender for a pay-out figure on your loan. This will provide an indication of what you need to achieve with the trade, and you can advise the dealer of the outstanding loan balance.
Effects on the Loan When You Trade-in a Car
If the vehicle is not under finance, opting to have the trade value deducted from the purchase price may have positive outcomes for your loan. It immediately lowers the overall amount required and as such, lowers the repayments.
The value of the trade can be seen as the deposit which saves the buyer using cash as the downpayment. By lowering the amount required for the loan, the LVR (loan to value ratio) is improved, which may contribute to a better loan offer compared with borrowing 100% of the purchase price of the vehicle.
Getting Better Interest Rates When You Trade-in a Car
A better motor vehicle interest rate may be achieved when using the existing vehicle as the deposit. Lenders may perceive the application with lower risk and make a better offer. The lower rate can then contribute further to lowering repayments, which may make the purchase even more affordable and workable.
This may apply for both Secured Car Loans for private buyers, and commercial credit facilities for business buyers.
Planning Finance with a Car Trade-in
The big tip when planning to use an existing vehicle as a trade on a new vehicle is - be realistic. You may love your car, kept it in great condition, given it a pre-trade detail, checked the used vehicle ads for an idea of what they are fetching on the second-hand market, ticked all the boxes. But the reality is, what you are offered is up to the dealer. In many instances, the value offered is not what the car owner expected, it can be lower.
When planning your purchase with finance, it may be astute to either consider repayment estimates based on 100% of the purchase price or allow for a range of trade values. Calculate loan estimates using our Motor Vehicle Finance Calculator.
If planning to use a trade and applying for finance prior to purchase, advise our brokers when briefing of your requirements. We have industry-level connections and may be able to source a realistic value for the trade before you speak with the dealer, for better planning purposes. The information may assist us to achieve an even better motor vehicle finance outcome for you.
Our brokers are specialists in motor vehicle financing, and we know the car industry. Speaking with us prior to purchase may help to clarify your options and make the decision that is in your best interest.
If planning to trade-in a car on a new car with finance purchase, contact Jade Car Loans 1300 000 003 for the best finance offers.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.
